Futures Group

I think the first para says it well. “But while we believe the greatest danger is past, we also recognise the price of our salvation has yet to be paid in full.” SocGen’s view on how public debt will swing recovery (or not) in the next five years.

Will Chimerica end in a divorce? Will the USA be a shadow of its former self?

Niall Ferguson, who co-invented the term Chimerica, asks what the post-Chimerica world might look like in 2013 in the latest HBR issue (full article below). He starts with the US in crisis (high public debt, digesting toxic assets, who wants to buy US bonds?) and then moves on to the economic marriage between the USA and China. Chimerica could end in a divorce if China relies less on exports for growth, resulting in a shift in the balance of power. Yet US global economic power is not undermined as there is no real alternative to the US dollar. Ferguson reiterates a point he made before, that the global economy’s breakdown hurts other nations more than the US. Other countries, including China, will be more weakened by comparison with the collapse in world trade and industrial production. This results in a world of low US growth, and lower growth for other emerging nations. What Pimco has termed ‘the new normal’.

The economic crisis will spill over into politics. In this crisis, US allies (East Asian exporters, newly democratic Eastern Europe) have been hurt more than US rivals. We see new outbreaks of instability in emerging markets that previously looked stable, such as Thailand and Ukraine. The world’s increasing instability reinforces the US as a safe haven. But the US may not want to be global policeman much more, and both new and old unstable spots are left to fester.

It is in this world that Ferguson revisits 2013. It is an assymetric world where everywhere else seems more dangerous and unpredictable than America, where the actual consequences of the crisis are less terrible. The USA’s financial power has been diminished, but its economic power is still stronger than all others.

Power after all, is relative.

The tension between state and national interests in the USA does not easily allow for countercyclical measures to work. States will cut back service, jobs and raise taxes during down times to balance their budgets. This amplifies the downturn, instead of mitigating them. Federal money fills in some of the hole now, but it will run out, and it will look worse. Even more important, truly interstate or national projects like high-speed rail, a smart power-grid etc are often held hostage by this tension. There is a need for a genuinely national government to knock heads and pull the nation in one direction, instead of fifty. In the crisis, perhaps we are seeing the birth of such a government today? Full article on the New Yorker by James Surowiecki here.

Found this through our horizon scanning colleagues, a book by ANU on China’s new place in a world lurching from crisis to crisis. Makes me think of the unfinished conversations we are having on a China-centered Asia (ChiAsia) and the different flows and how the hell Singapore should be placed on these new flows. Anyway, here’s a brief grab on what the book is about:

The world and China’s place in it have been transformed over the past year. The pressures for change have come from the most severe global financial crisis ever. The crisis has accelerated China’s emergence as a great power. But China and its global partners have yet to think or work through the consequences of its new position for the governance of world affairs. China’s New Place in a World in Crisis discusses and provides in-depth analysis of the following questions. How have China’s growth prospects been affected by the global crisis? How will the crisis and China’s response to it impact China’s major domestic issues, such as industrialisation, urbanisation and the reform of the state-owned sector of the economy? How will the crisis and the international community’s response to it affect the rapidly emerging new international order? What will be China’s, and other major developing countries’, new role? Can China and the world find a way of breaking the nexus between economic growth and environmental sustainability — especially on the issue of climate change?

You can download the entire book here.

James Fallows of Atlantic Monthly at the Aspen Ideas Conference right now, from his blog a snippet on the US not leading at any of the green technology fields.

On energy, a disturbing factlet. (And obviously not the only disturbing observation on the energy-and-climate front.) I heard three people separately observe that when it comes to future sources of “clean” energy, there is not a single field in which U.S. companies are the technical or market leaders. One person gave an informal ranking of the leaders this way:
Solar-powered electricity (ie, photo-voltaic systems): Norway, Japan, China
Solar-thermal systems (for heating water or buildings) Spain the leader in getting systems deployed
Wind power: Holland, Denmark, China
Geothermal power: nobody
Nuclear power (“clean” in the carbon-footprint sense): France, Japan
CCS, “Carbon capture and sequestration” (stripping out CO2 and burying it): Norway, Australia, Canada.

This person said that his list was rough and ready, and that US firms were in a close second place in some fields. But the main point, he said, is that “American firms are acting as if there is not going to be a vital, profitable, globalized clean-tech industry a decade from now, and as if they don’t care about competing in it.” He had some other more hopeful things to say about how sustained investment could help close the gap. But the list itself was news to me.

And from their latest piece here, excellent read on the elusive green economy. Clean energy, like other utilities, will be succeed or fall with consistent government support/inaction. China is now one of the largest players in clean technology because of government support. So is Germany’s solar play. Unlike Internet start-ups with lower funding costs, energy plays require much larger funds to starup that most VCs cannot afford. Government grants are needed, but that would mean choosing winners. Technology, policy and finance will intertwine, who knows when the breakthrough green tech will emerge from this interplay?

Met up with Ian Bremmer of Eurasia. Some notes below.

- Not a unipolar world, nor a bipolar world, but a non polar world. Absence of global leadership in critical issues e.g. climate change that will fester and stagnate. Such issues are unfixable in the absence of a shock to the system, which triggers a reaction to patch it up. Arguably, the accumulation of imbalances in Chimerica was such as issue, allowed to fester until septic shock set in.

- Globalisation increasingly challenged by state capitalism/SWFs. Not so much deglobalisation, but a mixing of public sector/market. The G20 is a menagerie worse than herding cats, because there are some animals in the menagerie that hate cats, and there’ll be more flareups between nations. Ian wrote an article in Foreign Affairs on the four waves of state capitalism in ‘State Capitalism comes of Age‘, worth a good read.

- The China-US relatonship will move from collaboration to intense competition. The US will bear the bulk of the world’s geo-political burden (Afghanistan, Pakistan …) while China will bear the bulk of the world’s geo-economic burden (developing domestic market in switch away from G3 exports).  I know Thomas PM Barnett talks often the need for the USA us this as a basis to form a grand bargain with China on this, while prodding China to take on more geo-pol burdens, but … but the military guys don’t talk to the economic guys within their government.

From Michael Pettis, excellent read, on cheap credit forced on Chinese SOEs and making them go stupid in investing (comparison with US conglomerate of the 70s inflating with cheap credit and then the breakup in the 80s, very Pretty Woman) .. and a rise in trade friction, plus a likely cultural shift into savings for the almighty US consumer. Post-crisis world moves deeper into Chasm.

R Florida’s maiden post as an Atlantic Monthly correspondent touches on the remaking of the US’ economic geography post-crisis. Specifically, mega-regions and high-speed rails would function as integrated economic units. We already see this in Japan, Korea and recently Taiwan. China herself is launching many high speed rail projects to link the mega-regions along the coast. India herself is starting MRT systems within their large cities, when we see highways, high speed railways within their mega regions, things will start to get interesting. The large, big gap here is mainland ASEAN. A high speed railway connecting Singapore to KL to Bangkok and maybe beyond to Ho Chih Minh and Hanoi will connect China’s mainland and create a large coastal mega region and the possibility of a unified market in the future. The silence on this is deafening, but we can start small and focus just on Singapore to KL to Bangkok. Recent news from KL on YTL Corporation intending to resurface just such a project bears watching, and supporting, from Singapore and Malaysia.

Great graphics from the New York Times on immigration changing the USA’s workforce, education, healthcare and other parts of society. This is a long running project by the paper on immigration, worth exploring other entries here.

Excellent post from the Atlantic by James Fallow here. There are several distinctions that James highlights in the road China is carving for itself in the face of collapsed global demand. You can read the original article for the details, they are (a) China will not go the way of Soviet Union (implode) or Japan (muddle along) and (b) Disruptive innovation – China will use this time to design high value high profit margin products.

Which brings me to what my colleague JP said. He had mapped an axis of what SGP imported/exported, with what China imported/exported. Besides showing how much of SGP’s trade eventually ended in the G3 markets, it also showed that where we were in direct competition with China lay a lot in (b), those high value high profit margin products that once China gets the ‘China price’, it is very hard for anybody else to occupy that space. Where China bought what Singapore made, it was a thin slice of products and services. We are in a precarious position if we don’t plot out the future of China’s demand and how Singapore can meet it.

Likewise, what can we do for India? And for the GCC? And for the new markets of G3 post-crisis?

I thought I could wrap up the Future of Global Demand project soon, but now I see what we’ve done is the base. More work should still be done on fleshing it out. I am grateful for the work JP has done in the past few months, and inshallah God willing, what I create as the next phase of Singapore and Future of Global Demand will do it justice. Many thoughts on this…